Yen gains as policymakers raise concerns of ultra-low interest rates

The New Zealand dollar declined sharply after the country’s central bank delivered its monetary policy statement. As expected, the bank lowered interest rates by 25 basis points to 1.50%, which was a historic low. The bank had already indicated that it would likely lower rates in the April meeting. The bank attributed this to the ongoing weakness in the domestic and international economy. It now hopes that the low interest rates will spur growth for the economy. A few minutes after the interest rates decision, China released mixed trade numbers. In April, its exports declined by -2.7% while imports increased by 4%.

The Japanese yen strengthened slightly against the USD after the BOJ released minutes of the previous meeting. In the meeting, the bank said that it would likely hike rates in 2021. The minutes showed that policymakers remained divided on how quickly to ramp up stimulus to hit the elusive goal of 2%. While most of the policymakers saw no immediate need to expand the stimulus, some warned of heightened risks to the country’s recovery efforts. Other officials said that the bank should be cautious about the prolonged period of ultralow interest rates especially to small regional banks.

The euro was relatively unmoved today even after the German industrial production data showed some improvement in March. In the month, the production rose by 0.5%, which was better than the expected decline of -0.5%. This data was the best reading since February this year. In the UK the Halifax house price index rose by 5% in April, topping the estimated increase of 4.5%. On a MoM basis, the index rose by 1.1%. In Switzerland, the unemployment rate declined to 2.4% in April.

Looking ahead, traders will receive the official crude oil inventory data from the EIA. This data is expected to show that the inventories rose by 1.21 million barrels in the past week. This will be much lower than the previously-released data of 9.93 million barrels. The weekly distillates stocks are expected to decline by 1.096 million barrels while gasoline inventories are expected to decline by 434K barrels.

EUR/USD

The EUR/USD pair was little moved after Germany released the industrial production data. The pair is now trading at the psychologically important level of 1.1200. On the hourly chart, the price is slightly above the 25-day and 50-day moving averages. The pair is also forming a symmetrical triangle pattern. It is also slightly above the 38.2% Fibonacci Retracement level. The pair will likely remain along these levels as traders wait for the US CPI data.

USD/JPY

The USD/JPY pair started declining early this month. Since then, the pair has declined from a high of 112.40 and reached a low of 109.90. This price is the lowest the pair has been since March 22. On the four-hour chart, this price is along the lower line of the Bollinger Bands and is below the 50-day and 25-day moving averages while the RSI has remained closer to the oversold level. The pair could remain along these levels as traders receive the CPI data from the US and as the trade conflict between the US and China intensifies.

NZD/USD

The NZD/USD pair declined to a low of 0.6525, which was the lowest level since March this year. The pair then pared some of those losses and is currently trading at 0.6591. On the four-hour chart, the price is slightly below the 23.6% Fibonacci Retracement level and below the 25-day and 50-day moving averages. The 20-day moving average oscillator has continued to remain below the neutral line. With the rate cut already in effect, the pair could start moving up because the cut was already priced in.